One West Michigan adviser hopes to channel the cultural shift toward localism into corporate succession planning by helping business owners preserve local ownership of their companies after an exit.
A growing cadre of business owners are focusing less on price and getting top dollar for their businesses if it means preserving their legacies in the communities in which they built their companies.
That’s according to Eric Seifert, the owner of Left Coast Capital Resources LLC in Muskegon, whose new “sell local” initiative urges owners looking to exit their businesses to give first consideration to a local buyer.
Left Coast typically works with small business owners on short- and long-term exit planning.
“A number of business owners are not interested in wringing the last possible dollar out of a deal. They’re more interested in seeing their legacy maintained and improved and grown, and their people taken care of,” Seifert said. “It’s still a sense of pride in them in what they built.”
The push to preserve local ownership seeks to stave off the disinvestment in the community that can occur when a company sells to an out-of-market buyer.
Seifert cites the example of a Grand Haven-area manufacturer that sold three years ago to an out-of-state private equity firm. After the deal, the new owners “slashed” the local office staff, dropped membership in the local chamber of commerce, discontinued working with a local insurance agency for employee benefits, “and quit doing a lot of community, charitable work,” he said.
The company has since been sold to another private equity firm.
Seifert compares that example to situations in which local buyers acquire a local business and “that money is kept locally, so it’s reinvested locally.”
“I think it’s an important thing for the health of our communities to promote local ownership,” he said.
Seifert credits a former economic developer with bringing the idea to him a few years ago. He’s received some interest in the initiative, including from Muskegon Area First, where Interim President and CEO Darryl Todd embraced the idea at a time when M&A activity remains strong as a generation of entrepreneurs prepares to exit their businesses.
Oftentimes, prospective buyers come from out of the area or out of the state, Todd said.
“There is a mass exodus of Baby Boomers that are looking to find their exit strategy so that they can retire,” Todd said. “We’re at a crucial point right now. We have a large number of people looking for their way to get out and we need to be able to have answers to help them in that process and at the same time help our community.”
The Muskegon-area economic development organization has been confidentially surveying business owners in Muskegon County to ask whether they are considering selling in the years ahead. If so, Muskegon Area First wants to work with the owners and connect them with a firm that can help in their exit planning and position the business to sell.
When it comes time to sell, the goal is to find a local buyer, or one within the region, “who’s going to be more sensitive” to the local community “than someone from Cleveland, or Chicago or wherever,” Seifert said.
Muskegon Area First can also identify and connect sellers with local investors or buyers “so that we can help to make sure that business is kept in Muskegon County,” Todd said. The organization has an active list of potential investors and is looking to develop a pool of entrepreneurs who will someday consider buying a local business when it sells.
“We want to keep those companies here so they can grow and thrive. This is another avenue for us to be able to help do that,” Todd said.
While the notion of “sell local” sounds good, it’s not easily executed and is even impractical for sizable transactions, according to local M&A professionals. Sometimes bringing out-of-state capital or outside private equity firms into the market for a transaction can even prove beneficial, if the investor maintains the local operations.
John Kerschen, managing partner at Charter Capital Partners in Grand Rapids, notes past research from the Association for Corporate Growth shows sales and jobs growth at companies backed by private equity outpaces other firms in the U.S.
From 2015 to 2017, private equity-backed, middle-market companies grew jobs by 60 percent, compared to 24 percent for other businesses. Sales for private equity-owned companies increased 103 percent from 1998 to 2017, according to ACG.
Todd and Seifert acknowledge a “sell local” promotion has its limitations. Some transactions are just too big to complete locally in a market the size of Muskegon County and require an outside investor or buyer.
They also do not want to discourage outside investors or have a business owner take less for their company just to sell to a local buyer.
“We’re not going to ask them for a hometown discount or anything like that,” Todd said. “Many of these business owners, they’ve worked all their lives. This is what they’ve done, so we want to make sure they’re getting the best return they can. Hopefully, once they position themselves, we’ll have an avenue locally for them to keep the business here in Muskegon County.”